Shareholder Activism in Asia Set to Keep Climbing, JPMorgan Says

(Bloomberg) -- Shareholder activism in Asia should increase steadily after campaigns in the region rose more than tenfold in the last six years, according to JPMorgan Chase & Co.

Rising foreign ownership of equities and heightened awareness of corporate governance are fueling activism in Asia, where family-controlled businesses including South Korea's chaebol are becoming targets, the U.S. bank said in a research note this week.

“Investor activism will be here to stay,” JPMorgan's David Hunker, the author of the report, said by phone from New York. “Companies in Asia should be proactively preparing right now as activism is going to be a permanent fixture in the region's capital markets.”

Campaigns in Asia rose to 106 in 2017 from 10 in 2011, the report shows. Activism in Asia comprised 31 percent of activity outside the U.S., compared with 12 percent six years before, according to the report.

Management and boards in the region must adapt as foreign activists increasingly look to Asia and domestic investors become more comfortable exerting pressure, according to JPMorgan.

“Asian conglomerates are natural targets for shareholder activists,” said Hunker, who is head of shareholder activism defense at the bank. “The activists believe once they break up bulky corporate structures, they can unlock value.”

The report used Elliott Management Corp.'s pursuit this year of Hyundai Motor Co. to illustrate the vulnerability of Asian companies. While campaigns have mostly targeted major markets like South Korea, Japan and Hong Kong, JPMorgan anticipates that firms in smaller Asian markets will also be susceptible.

Activity in the region will also increase as more global money managers with activism experience look to grow investments in the region, the report shows.

“Asia issuers are finding themselves with a significant number of shareholders who have proven to be inclined to support an activist, if one were to emerge, and even initiate a campaign,” the report said.

Asia has led the world in activists that short sell, Hunker said. A lack of transparency at certain companies in the region provides an opportunity for activists to bet against the stocks and profit from the share price decline, he said.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net.

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, Timothy Sifert, Matthew Monks

©2018 Bloomberg L.P.